SERVICES

What is hire purchase?

• Hire Purchase is a type of loan that enables a business to purchase vehicles or equipment whilst spreading the cost over a fixed period.
• At the end of the HP agreement the customer will have outright ownership of the asset.
• With these type of agreements, the VAT is paid up front with the deposit. Unless the finance company offers to defer the VAT to help with the company’s cash flow.

What are the benefits of using HP?

• It is a great product for cash flow with the benefit of paying over terms of up to seven years.
• Its tax efficient as businesses can claim writing down allowances and also offset interest against taxable profits.
• Hire purchase can be flexible; deposits, period and payments can be set to meet each business’s needs. For example, seasonal payments for customers who don’t have regular cash flow throughout the year. Another example would be where a balloon or lump sum is added to the end of the agreement to reduce monthly payments.

What is leasing?

• Leasing enables a business to rent vehicles or equipment whilst spreading the cost over a fixed period.
• Unlike hire purchase, the VAT is not paid up front but is charged on the monthly payment.
• With leasing ownership of the asset always stays with the finance provider.

What are the benefits of using leasing?

• Deposits are often lower on a lease and can be as small as one month’s rental payed up front.
• It is tax efficient as businesses can offset the rental payments against taxable profits.
• At the end of the term the business can continue renting the equipment. Very often with just one small annual payment.
• Alternatively, the goods could be sold to a third party with the business keeping the majority of the sale proceeds.

What is contract hire?

• This product is a method of hiring vehicles from a finance or leasing company and can be for both private or business customers.
• This is often referred to as personal contract hire (PCH) and business contract hire (BCH).
• With contract hire there is a fixed monthly rental. This can include all the maintenance costs, such as servicing, tyres and road fund licence.
• The mileage allowance is set at the beginning of the agreement.

What are the benefits of using contract hire?

• The deposit is usually low, sometimes as little as only 3 rental payments.
• Great for cash flow and budgeting as it enables businesses to finely tune budgets with no unexpected motoring costs. Especially when the payment includes full maintenance.
• The leasing companies pass on their huge manufacturer discounts to the customer in the form of lower rentals.
• Clients do not have to worry about depreciation and residual values as they just hand the vehicle back to the finance company at the end of the rental period.
• Very often this is the preferred option for businesses with a large fleet as they don’t see the benefit of owning a depreciating asset.
• Also with contract hire businesses would claim back the full VAT, for example, on a commercial vehicle or pool car, or 50% of the VAT where there is an element of private use.

What is refinancing?

• This product enables a business to raise cash quickly using the assets that it fully owns - or possibly those that are nearing the end of a finance agreement.
• The customer essentially sells the assets to the finance company, at their current market value, and then enters into a new hire purchase or leasing agreement for usually up to a period of 5 years.

Why would businesses refinance?

• A customer might use refinancing as a cash raising exercise for their business. This could be for a whole host of reasons including temporary cash flow problems, an unexpected bill or possibly just to raise funds to pay off a fellow director who is retiring from the business.
• Refinancing could also be used to consolidate several existing finance agreements into a lower monthly repayment.